Contributors

The Circuit Court of Howard County, Maryland, ordered judgment today in favor of the First Baptist Church of Guilford and its bank, First Mariner Bank, in a construction dispute involving a $13 million performance bond sold by Fidelity & Deposit Company of Maryland.

After a two-week trial in December, a jury of nine awarded $1.6 million in damages due to F&D’s breach of its obligations under the bond. The jury also awarded F&D an offset for sums sought by F&D on behalf of the Church’s general contractor, Harbor View Contractors, Inc.

The origin of the bond dispute was a 2007 construction contract between the Church and Harbor View. The contract was for the construction of an 80,000-square-foot Church building on 7504 Oakland Mills Road in Columbia. The full amount of the contract was secured by the performance bond sold by F&D to the Church and the Bank, as dual obligees.

Evidence at trial showed that Harbor View became insolvent and walked off the job in December 2009, when the building supposedly was nearing completion. Harbor View’s owner, Jeffrey A. Goodwin, subsequently filed for personal bankruptcy and Harbor View went out of business.

When Harbor View walked off the job, the Church and the Bank asked F&D to step in, as required by the performance bond. They asked F&D to complete or make arrangements for the completion of the new building by another contractor.

But F&D refused to take any of those actions. Instead, F&D took the position that the Church was the party that had breached the construction contract, not Harbor View. Specifically, F&D claimed that Harbor View was entitled to walk off the job because the Church had failed to show it would be able to pay for the rest of the contract.

As shown by evidence at trial, Harbor View had demanded “evidence of financing” from the Church based on a standard-form provision in the construction contract, allowing the contractor to request such evidence from the owner in the middle of a job. Harbor View made this demand after a meeting with F&D, at which Harbor View informed F&D that it was insolvent.

F&D then used the Church’s response as the excuse for avoiding its obligations under the bond. F&D argued that the response was inadequate, so the Church breached the contract and F&D had no obligations under the bond.

In 2010, F&D had moved for summary judgment on this ground. But the Court denied that motion in January 2011 and granted partial summary judgment instead to the Church and the Bank. The Court ruled that the evidence of financing the Church provided was adequate, that Harbor View had defaulted on its obligations and that the Church had not.

At that point, all that was left for trial was an assessment of F&D’s obligations under the bond.

F&D tried repeatedly throughout 2011 to upset those summary judgment rulings, first with a motion for reconsideration and then with a motion for interlocutory appeal. All of its efforts, however, were unsuccessful. Instead of altering these rulings, the Court placed the case on an expedited schedule, with trial to be completed by the end of 2011.

At the December trial, the Church and the Bank presented evidence of the expense and inconvenience that flowed from the actions of F&D and Harbor View, including the costs of retaining a replacement contractor. They also presented evidence of the substantial premiums F&D had received for the bond that it had failed to honor.

"This case was an unfortunate example of a double default – first by the contractor and then by the surety,” said Rhonda D. Orin, Managing Partner of the Washington, D.C. office of Anderson Kill & Olick and lead counsel for the Bank.

“Fortunately, the Howard County Circuit Court repeatedly affirmed the basic principle that sureties cannot evade their obligations under performance bonds. The jury also recognized this principle with the damages award. This verdict should make sureties think twice before they fail to perform."

Anderson Kill practices law in the areas of Insurance Recovery, Anti-Counterfeiting, Antitrust, Bankruptcy, Commercial Litigation, Corporate & Securities, Employment & Labor Law, Health Reform, Intellectual Property, International Arbitration, Real Estate & Construction, Tax, and Trusts & Estates. Best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes, with no ties to insurance companies and no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Newark, NJ, Philadelphia, PA, Stamford, CT, Ventura, CA, and Washington, DC. For companies seeking to do business internationally, Anderson Kill, through its membership in Interleges,a consortium of similar law firms in some 20 countries, can provide service throughout the world.